Opinion: We should prepare for spot Ethereum ETF rejection

Original title: Should We Do Some Preparation for the Possible Rejection of Spot ETH ETFs?

Original author: BloFin

Original compilation: Frank, Foresight News

Compared with spot Bitcoin ETF, the negative impact of PoS mechanism, price manipulation risk and securitization risk significantly reduce the probability of approval of spot Ethereum ETF. However, whether the Ethereum ETF is approved or not will ultimately not affect the breakthrough growth of ETH price.

However, with the rise of other competitors, Ethereum’s market share may be difficult to expand further.

Securitization risks

Many investors believe that after the spot Bitcoin ETF is approved , the approval of the spot Ethereum ETF is “just a matter of time.” Some analysts previously believed that since BlackRock is one of the applicants for the spot Ethereum ETF, the possibility of approval of the spot Ethereum ETF can even reach 80%.

However, analysts have gradually lowered their expectations for the spot Ethereum ETF as more details are revealed.

Analysts’ concerns are not groundless. Despite the approval of an Ethereum futures ETF last year, with the listing of a spot Bitcoin ETF, the chairman of the U.S. Securities and Exchange Commission (SEC) appears to have found a standard for reviewing cryptocurrency spot ETFs -Not having security properties or becoming a security risk "Commodity Token".

There is no doubt that Bitcoin is one of the "gold standards" in the eyes of the US SEC:

· Bitcoin is similar to mined gold in that its reserves are limited, non-renewable, and acquisition requires specific costs;

· The Bitcoin network is stable and mature, and factors such as consensus mechanism upgrades will not cause major changes in the foreseeable future. , just like wheat will not turn into corn;

·Having never experienced an ICO (initial coin offering) or any form of financing, its market is gradually formed by buying and selling transactions between users, and the Chicago Bull The formation of the sheep and grain markets was one of the main reasons for the establishment of the Chicago Mercantile Exchange (CME), and this is also a classic case;

· The number of currency holders is large and dispersed, and the risk of price manipulation is relatively low.

However, for Ethereum, these criteria do not appear to be fully met.

Although the new mechanism introduced by Ethereum 2.0 and its subsequent upgrades will cause ETH to show a deflationary trend, that is, to reduce its total market circulation,However, ETH is Under the PoS mechanism, additional issuances will continue. Theoretically, there is no upper limit to the total amount, and its "inflation" and "deflation" are closely related to its own network activity.

For example, when the Ethereum network activity was low (such as July 2023), the "inflation" of ETH appeared again.

Some people have interpreted Ethereum as a "renewable digital commodity", similar to renewable agricultural products such as corn and soybeans, emphasizing that it can be used in digital "Planting" and "harvesting" in the space, and the PoS mechanism is compared to sowing - holding 32 ETH is equivalent to owning "seeds", which can participate in mortgage mining and obtain income.

However, holding crops does not bring voting rights, but ETH holders can vote under the PoS mechanism. The more holdings, the more voting rights. The greater the power, the greater the impact on the future of the Ethereum network. Furthermore, it is difficult to find a more reasonable explanation for making ETH look more like a "commodity" than a "security."

· The Ethereum network is constantly being upgraded. Among them, Ethereum futures underwent a major upgrade in the second year after it was officially listed on the Chicago Mercantile Exchange (CME) - its consensus mechanism changed from PoW to PoS, and a mainnet fork occurred. Ethereum is like the "Ship of Theseus", constantly upgrading and upgrading. There is a big difference in nature between ETH in March 2024 and ETH in March 2021;

· ETH conducted ICO financing in 2014. The financing behavior made ETH likely to be classified as an "asset with security attributes." Because the US SEC and financial institutions in other countries have stated that "ICO tokens may be considered securities." For assets with controversial properties, the SEC may consider them more carefully.

· The problem of whale holding currency. According to Glassnode statistics,nearly 55% of the ETH supply (approximately 66 million ETH) is held by 1,041 addresses, with an average balance of over 10,000 ETH. In comparison, retail holders own less than 45% of the ETH supply. At the same time, considering that under the PoS mechanism, token holdings are almost directly linked to voting rights, the holders of these 1041 addresses can significantly affect the upgrade and operation of the Ethereum network;

In contrast, Bitcoin holders have no voting rights and will not have a significant impact on the operation of the Bitcoin network. Since 2009, the distribution of Bitcoin holders has become quite spread out. As of March 2024, Whales holding more than 1,000 BTC only account for about 40% of the total circulation, and the number of whale addresses has reached 2,100, which makes Bitcoin price manipulation possible The performance is significantly lower than that of Ethereum.

Of course, the U.S. Securities Exchange The SEC is not letting up, at least for now. In public documents, the US SEC expressed concerns about the potential risks brought by Ethereum's PoS mechanism:

"Is there any specific risk in ETH and its ecosystem?" Will these characteristics, including the PoS mechanism and the overly centralized control or influence of a few individuals or entities, raise concerns that Ethereum is susceptible to fraud and manipulation?"

In short, due to the existence of "securitization risk", although we expect the spot Ethereum ETF to be approved, we must be prepared for the US SEC's rejection.

The views of the whales

Compared with the situation when the spot Bitcoin ETF was approved Spot whales and derivatives traders do not seem to have high expectations for the approval of the spot Ethereum ETF and are preparing for it.

Judging from the on-chain data, although miners’ quarterly selling behavior will have a certain impact on the statistics, since May 2023, more than The number of addresses holding 100 BTC has increased significantly. Compared to the first quarter of 2022 and the first half of 2023, the impact of miners' selling behavior on the number of addresses has been significantly weakened, which means thatmany spot whales bought large amounts of BTC before the spot Bitcoin ETF was approved .

However, the ETH chain The data above do not show similar signs. Even using relatively loose criteria, the number of addresses holding more than 32 ETH has been decreasing since January 2023, and the expected hype of the spot Ethereum ETF did not significantly affect this downward trend, but rather the speed of the decline. somewhat accelerated.

If we only consider holding more than 1,000 coins For ETH addresses, the same conclusion can be drawn, with whales appearing to be taking advantage of speculation and optimism to sell their ETH for profit.

In the options market, we Some clues were also found. After the announcement of the spot Bitcoin ETF application, the "skewness" (Foresight News note, a statistical concept used to describe the asymmetry of data distribution, which is divided into negative skewness and positive skewness) of BTC and ETH forward options appeared. It rose significantly and peaked in November 2023, indicating that options traders were more inclined to bet on rising market prices at that time (bullish).

In contrast,The news of spot Ethereum ETF application did not cause additional bullish sentiment among option traders. In February this year, forward options were biased. The rise is more likely due to a return to liquidity.

Are spot ETFs important?

There is no doubt that spot ETFs are indeed important. The approval will boost the prices of related cryptocurrencies. After the approval of the spot ETF, additional liquidity support from the U.S. stock market has pushed the price of Bitcoin up more than 71% since the beginning of the year, and the price of Bitcoin has also exceeded $72,000, further setting a new all-time high.

It is worth noting that, Although ETH's performance in terms of exchange rate is weaker than that of BTC, in terms of price growth, ETH's price performance is not inferior to BTC, and even the year-to-date growth rate is slightly better than BTC.

ETH The recent good performance depends on several factors:

On the one hand, when the price of Bitcoin rises sharply, the inertia of investors in the cryptocurrency market will prompt them to sell Bitcoin, in turn, buys Ethereum, “grafting” the cash liquidity stored in Bitcoin to Ethereum and other cryptocurrency markets. At the same time, the rapid return of liquidity has also provided more support for the price of Ethereum, and the relatively high volatility of Ethereum has brought higher growth potential.

Therefore, in the medium to long term, as more cash flows into the cryptocurrency market, an increase in the price of Ethereum is expected and is already reflected in the prices of the derivatives market. Medium -Persistent positive skew in forward call options is the best reflection of bullish sentiment among investors, and it is only a matter of time before Ethereum prices reach new highs.

The approval of spot ETFs will only speed up the above process, but it will be okay if it is not approved. The price of Ethereum may experience some fluctuations or even fall back significantly. However, in a bull market environment, the gap caused by the decline will soon be filled, and the upward trend of Ethereum price will not fundamentally change.

It is worth noting that if the spot ETF cannot be approved, Ethereum will need to face other competitors from within the cryptocurrency market - SOL has been in the past 6 years The performance in the past month has been better than that of BTC, and other public chain tokens are also eager to try.

Although Ethereum’s leading position will not be challenged for the time being, other competitors will undoubtedly divert the cash liquidity originally belonging to Ethereum, due to the general Having adopted a relatively stable monetary policy, the process of liquidity returning to the cryptocurrency market will be "relatively slow and smooth." Therefore, the competition for existing cash liquidity will become one of the main challenges facing Ethereum.

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